Amana Inc. pays its sole shareholder, Carl Lopez, a salary of $200,000. At each year-end, Amana pays Carl a "bonus" equal to the difference between Amana's taxable income for the year (before the bonus) and $75,000. For 2019, Amana reported pre-bonus taxable income of $800,000 and paid Carl a bonus of $725,000. When audited, the IRS determined that individuals working in Carl's position earned on average $300,000 per year. Amana had no formal compensation policy and never paid a dividend. How much of Carl's compensation (salary plus bonus) might the IRS recharacterize as a dividend? Assuming the IRS recharacterizes $500,000 of Carl's bonus as a dividend, what additional income tax liability does Amana Inc. face? (Ignore payroll taxes)
Get Answers For Free
Most questions answered within 1 hours.